Labor market closes 2009 with no sign of robust jobs recovery

By Heidi Shierholz with research assistance from Kathryn Edwards and Andrew Green

This morning’s Bureau of Labor Statistics’ employment report showed that the jobs situation continued to worsen with the loss of another 85,000 jobs in December 2009. Unemployment held steady at 10.0%, but that was entirely due to the fact that the labor force shrank by well over half a million (661,000) workers in December. If these workers had stayed in the labor force (and thus counted among the unemployed), the unemployment rate would have risen to 10.4%.

Since the start of the recession in December 2007, the labor force has declined by a total of 810,000 workers. This includes an increase of 1.2 million from December 2007 to May 2009 and a decrease of 1.9 million from June 2009 to December 2009. Adult men made up two-thirds of the decline in the adult labor force from June to December of last year.

Given population growth from December 2007 to December 2009, we would have expected the labor force to increase by around 2.8 million over this period. This means that there are now roughly 3.6 million “missing workers,” that is, workers who dropped out of (or never entered) the labor force during the downturn. When the recovery begins to take hold and these missing workers start entering or reentering the workforce in search of jobs, it will put strong upward pressure on the unemployment rate.

Since the start of the recession in December 2007, an estimated 8.1 million jobs have been lost. This includes both the 7.24 million jobs lost in the payroll data as currently published and the preliminary annual benchmark revision(released October 2 , 2009), which showed an additional 824,000 jobs lost from April 2008 to March 2009. This number understates the magnitude of the hole in the labor market by failing to take into account the fact that the labor market should have added jobs since December 2007 simply to keep up with population growth. This means the labor market is currently 10.6 million jobs below what would restore the pre-recession unemployment rate. In order to fully fill in this 10.6 million jobs gap in the labor market in three years (by December 2012), employment would have to increase by about 400,000 jobs every month between now and then. To put this number in perspective, in the peak year of jobs growth during the 1990s expansion (1997), 280,000 jobs were added each month, on average, and during the peak year of jobs growth during the 2000s expansion (2005), 212,000 jobs were added each month, on average. To achieve and sustain the large growth levels needed just to get us back to the 2007 peak will require major policy intervention. (See the Methodology section below for how we calculate the size of the jobs gap.)

Unemployed workers continue to have a very hard time finding work: layoffs are moderating significantly, but hiring is not yet picking up. In December, an additional 229,000 jobless joined the ranks of those unemployed for over six months. Of the 15.3 million unemployed workers in this country, 6.1 million (39.8%) have been jobless for over six months. This is 4.0% of the total labor force—far surpassing the previous peak of 2.6% set in June 1983. In December, the average unemployment spell was 29.1 weeks, and the median unemployment spell was 20.5 weeks, both record highs.

While an important measure, the unemployment rate understates weakness in the labor market by excluding both the jobless who want work but have given up actively looking (“marginally attached” workers) and people who are working but can’t get the full-time hours they want (“involuntary part-time” workers). In December, there were 2.5 million marginally attached workers, 9.2 million involuntary part-timers, and 15.3 million unemployed workers in the United States, fora total of 27 million workers who are either unemployed or underemployed (nearly double its level at the start of the recession).This represents 17.3% of U.S. workers. This “underemployment rate” shows that a much larger swath of the U.S. labor market is directly affected by the downturn than the unemployment rate alone suggests.

Demographic breakdowns in unemployment show that, while all major groups have experienced substantial increases over this downturn, men, racial and ethnic minorities, young workers, and workers with lower levels of schooling are getting hit particularly hard. Furthermore, as the following table shows, workers at every level of education and workers age 55+ have broken their record unemployment rate levels set in the recession of the early 1980s.

Looking at these demographic breakdowns, we find:

One in every four unemployed workers is under 25. Although 16-24 year olds constitute 13.5% of the labor force, they are 25.7% of the unemployed.

Nearly one in every five unemployed workers is black. Although black workers constitute 11.5% of the labor force, they are 18.6% of the unemployed.

Almost half (49.3%) of unemployed workers over age 25 have attended some college, while one in five (20.1%) have a college degree.

Turning to the payroll data, one good sign is in temporary help services, which added 46,500 jobs for a fifth straight month of gains. This is good news because growth in this sector tends to precede broader recoveries.

Unfortunately, the length of the average workweek held steady in December at 33.2 hours. When the workweek grows it means larger paychecks going to consumers and is a sign of hope for a broader recovery. Hours typically increase before employment picks up, as employers who have cut hours will restore them for their existing workforce before hiring new employees.

After very weak growth earlier in 2009, wages now appear to be growing modestly. Nominal hourly wages of production workers grew 3.9% from December 2007 to December 2008 but dropped to 2.2% growth from December 2008 to December 2009, including a 2.6% annualized growth rate over the last three months. Nominal weekly wages of production workers grew 2.4% from December 2007 to December 2008 but dropped to 1.9% growth from December 2008 to December 2009. This included a 3.8% annualized growth rate over the last three months.

Major sectors that saw growth were professional and business services (which includes temporary help services), adding 50,000 jobs, and education and health services, which added 35,000. Government lost 21,000 jobs under the pressure of budget cuts (-9,000 federal, including large layoffs of U.S. Postal Service workers, -3,000 state, and -9,000 local). Basically all other major sectors saw losses. Construction lost 53,000 in December after losing an average of 45,300 per month for the previous three months. Like the rest of 2009, most of the December construction losses were in nonresidential and heavy construction, compared to 2008, when most construction losses were in residential. Manufacturing saw a decline of 27,000 in December after losing an average of 41,300 per month for the previous three months. Wholesale trade lost 18,200 in December after losing an average of 8,100 per month for the previous three months, compared to retail trade, which lost 10,200 in December after losing an average of 31,000 per month for the previous three months.

Broadly speaking, this report is much better news than those from the first 10 months of 2009, but it nevertheless offers no signs of a robust jobs recovery. And given the 10.6 million jobs gap in the labor market, it will take enormous levels of growth
for the labor market to recover any time soon. The economic case for additional government intervention to create jobs is unmistakable.

Methodology: The Jobs Gap

The jobs gap is a measure of the number of payroll jobs needed to return to the pre-recession rate of unemployment (while holding the pre-recession labor force participation rate constant, meaning no erosion in the relative size of the labor force).

Calculating the size of the current jobs gap. The gap is the number of jobs lost since the start of the recession (December 2007) plus the number of jobs that would have been needed to keep up with population growth over this period. The working-age population has grown 1.8% (0.9% annually) since the start of the recession, according to the Bureau of Labor Statistics’ household survey. Because there tend to be large discontinuities in the population data each January due to the fact that the January data are adjusted to reflect updates in the U.S. Census Bureau population controls, only January population data were used, and other months’ population data were extrapolated.

Calculating how many jobs are needed every month to close the gap in three years. We assume that the population will continue to grow at the same annual rate (0.9%) it grew in the last year for which we have a full year of data (2008). How many jobs are needed each month to close the gap by December 2012 is the difference between December 2009 payroll employment and what payroll employment in December 2012 would be if it had grown at the same rate as the working-age population from December 2007 to December 2009 and continues to grow at a 0.9% annual rate until December 2012, divided by the number of months (36). This amounts to 402,000 payroll jobs each month.

For breakdowns of the latest data by race/ethnic group, gender, occupation, and education level and for comparisons of the current economic downturn to past recessions, please visit EPI’s ECONOMY TRACK.

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